Tesla Privatization Probably Wouldn’t Affect Its Cars or Technology

Stephen Lawson

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8th August 2018

Elon Musk’s plan to turn Tesla back into a private company probably wouldn’t change its model line-up or spark otherwise impossible technical innovations.

If the maverick automaker took its stock off the public market, it would be freed from some forms of regulatory scrutiny and quarterly expectations, but it wouldn’t have total freedom to pursue new projects, industry analysts say.

Innovation costs money, and since going public in 2010, Tesla has never generated profits from selling cars that could be funneled into more development. Musk predicts the company will have positive cash flow and make profits starting this quarter. But going private by itself won’t change the equation — and might make it worse, if Tesla needed to raise money and couldn’t do it on the public market.

“They’re going to need a significant amount of cash, and unless investors are willing to pour in more money, they may be constrained in their ability to develop new products and technologies,” said Navigant Research analyst Sam Abuelsamid. Still, depending on who finances the move, Tesla might get more money to try new things, he said.

Musk first proposed going private in typically off-the-cuff fashion on Twitter. “Am considering taking Tesla private at $420. Funding secured,” he tweeted in the middle of the trading day on Tuesday, August 7. That alone was unconventional, because most companies halt trading of their shares before letting out a statement that significant. Tesla stopped trading later in the day.

After Musk had put out the idea, Tesla gave a few more details in a blog post, which took the form of a letter from Musk to shareholders.

Unlike the typical privatization plan, this one would allow current shareholders to either sell at $420 per share — about a 20% premium to the stock price following Tesla’s second-quarter earnings announcement last week — or keep their stock. About every six months, they would be able to sell or buy shares, similar to the way trading works in Musk’s privately held SpaceX. Musk’s role as CEO would not change.

The privatization reportedly would value the company at more than $70 billion. There’s no private company that big in the auto industry, Abuelsamid said. The closest analogy might be when tech conglomerate Dell went private, but tech companies typically need less capital than carmakers to develop and manufacture their products, he said.

Among the big-ticket items coming up on Tesla’s agenda are the construction of a massive factory in China and assembly lines for the ambitious Tesla Semi truck and Roadster sports car.

Going private might free the company in some ways, but it probably wouldn’t unleash a lot of pent-up creative energy, Gartner analyst Michael Ramsey said. The reason: Nothing’s pent up to start with.

“Everything at that company is driven by Elon and whatever he wants to do,” Ramsey said.

Still, the demands that the stock market makes on Tesla, which lead to goals like producing 5,000 Model 3s per week, create headaches that Musk would rather not have.

“I think he’s just trying to get off the treadmill a bit,” Ramsey said. “If they just made as many as they could, to try to meet demand, they’d be better off.”

But public or private, Tesla isn’t about to become an average company. “As long as Elon remains CEO, probably not,” Abuelsamid said.

— Stephen Lawson is a freelance writer based in San Francisco. Follow him on Twitter @sdlawsonmedia.